2 AnnouncementsReminder: Midterm 2 next Tuesday on 20/12 at 17:00 CAS-Z08Aggregate Planning: will skip AP in services; however OPSM 405 Service Operations Management has an extensive module on this topicLinear Programming: Quantitative Module B; will skip graphical solution and sensitivity analysis parts
3 Example 2: Finding Cu and Co A textile company in UK orders coats from China. They buy a coat from 250€ and sell for 325€. If they cannot sell a coat in winter, they sell it at a discount price of 225€. When the demand is more than what they have in stock, they have an option of having emergency delivery of coats from Ireland, at a price of 290.The demand for winter has a normal distribution with mean 32,500 and std dev 6750.How much should they order from China??
4 Daily workforce and customer Operations PlanningProcess PlanningLongrangeStrategic CapacityPlanningManufacturingAggregate PlanningServiceMaster ProductionMediumrangeSchedulingMaterial RequirementPlanningOrder SchedulingWeekly workforce andShortrangeCustomer schedulingDaily workforce and customerscheduling
5 Relationships of the Aggregate Plan Plan forProductionDemandForecasts,ordersMasterSchedule, and MRP systemsDetailed WorkSchedulesExternalCapacitySubcontractorsInventory OnHandRaw MaterialsAvailableWork ForceMarketplaceand DemandResearch andTechnologyProductDecisionsProcessPlanning & Capacity
6 Provides the quantity and timing of production for intermediate future Aggregate PlanningProvides the quantity and timing of production for intermediate futureUsually 3 to 18 months into futureCombines (‘aggregates’) productionOften expressed in common unitsExample: Hours, dollars, equivalents (e.g., FTE students)Involves capacity and demand variablesPoint out that aggregate scheduling involves disaggregation of, or adding detail to, the aggregate schedules.
7 Aggregate Planning Goals Meet demandUse capacity efficientlyMeet inventory policyMinimize costLaborInventoryPlant & equipmentSubcontractAt this point, we are making the decisions as to “how” we will meet the aggregate schedules, and “when” each major task with be performed.
8 Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity:changing inventory levels (recall from earlier session that these are known as seasonal inventory)varying work force size by hiring or layoffsvarying production capacity through overtime or idle timesubcontractingusing part-time workers
9 Aggregate Planning Strategies Pure Strategies Demand Options — change demand:influencing demandbackordering during high demand periodscounterseasonal product mixing
10 Aggregate Scheduling Options - Advantages and Disadvantages SomeCommentsChanginginventory levelsChanges inhuman resourcesare gradual, notabruptproductionchangesInventoryholding costs;Shortages mayresult in lostsalesApplies mainlyto production,not service,operationsVaryingworkforce sizeby hiring orlayoffsAvoids use ofother alternativesHiring, layoff,and trainingcostsUsed where sizeof labor pool islarge
11 Advantages/Disadvantages - Continued OptionAdvantageDisadvantageSomeCommentsVaryingproduction ratesthrough overtimeor idle timeMatches seasonalfluctuationswithouthiring/trainingcostsOvertimepremiums, tiredworkers, may notmeet demandAllowsflexibility withinthe aggregateplanSubcontractingPermitsflexibility andsmoothing of thefirm's outputLoss of qualitycontrol; reducedprofits; loss offuture businessApplies mainlyin productionsettings
12 Advantages/Disadvantages - Continued OptionAdvantageDisadvantageSomeCommentsUsing part-timeLess costly andHighGood forworkersmore flexibleturnover/trainingunskilled jobs inthan full-timecosts; qualityareas with largeworkerssuffers;temporary laborschedulingpoolsdifficultInfluencingTries to useUncertainty inCreatesdemandexcess capacity.demand. Hard tomarketing ideas.Discounts drawmatch demand toOverbookingnew customers.supply exactly.used in somebusinesses.
20 Illustration of calculations Level productionTotal sales = $130 millionTotal labor-hours required = $130 million/$30 = M labor-hrs.Total hours = 243 days . 8 hrs/day = 1944 hrsNumber of workers = M / 1944 = 2229Variable workforce for JanuarySales in labor-hours = $7.6 M /$30 = 253,333Working hours = 20 days . 8 hrs/day = 160 hoursVariable work force = 1581
21 Variable workweek for January Sales in labor-hours = $7.6 M /$30 = 253,333Number of workers = 2229 (average required, constant)Variable monthly load for a worker = 253,333/2229 =Variable workweek = /4 = 28.4 hours/weekVariable inventory for January (Level production)Production in January =(2229 workers)(20 days/month)(8 hrs/day) = 356,640Demand for January = 253,333 (labor-hours)Inventory = 103,307 labor-hoursInventory ($) = (103,307)($30/labor-hour) = $309,920
22 Evaluating Alternatives Hiring cost = $200 per employeeFiring cost = $500 per employeeRegular labor cost = $5 per hourOvertime premium cost = $2.5 per hourUndertime premium cost = $3 per hourInventory carrying cost = 2% per month (applied to the monthly ending inventory)Beginning labor force = 1,583 personsBeginning inventory = 0
24 Alternative 2: Level Production constant worforce :2229, Variable InventoryInitial hire = ( ) = Cost = 129,200Initial Production Required Ending CostInventory (labor-hours) InventoryJanuary , , , $…. … …… …… ……...Total $1,882,420
25 Example 2:National Steel Corporation (NSC) produces a special-purpose steel used in the aircraft and aerospace industries. The Sales Department of NSC has received orders of 2400, 2200, 2700, and 2500 tons of steel for each of the next 4 months. NSC can meet these demands by producing the steel, by drawing from its inventory, or by using any combination of the two alternatives.
26 The production costs per ton of steel during each of the next 4 months are projected to be $7400, $7500, $7600, and $ Because costs are rising each month-due to inflationary pressures- NSC might be better off producing more steel than it needs in a given month and storing the excess.Production capacity cannot exceed 4000 tons in any one month. The monthly production is finished at the end of the month, at which time the demand is met. Any remaining steel is then stored in inventory at a cost of $120 per ton for each month it remains there.
27 If the production level is increased from one month to the next, then the company incurs a cost of $50 per ton of increased production to cover the additional labor and/or overtime. Each ton of decreased production to cover the additional labor and/or overtime. Each ton of decreased production incurs a cost of $30 to cover the benefits of unused employees.The production level during the previous month was 1800 tons, and the beginning inventory is 1000 tons. Inventory at the end of the fourth month must be at least 1500 tons to cover anticipated demand.Formulate a production plan for NSC that minimizes the total costs over the next 4 months.
28 Data for the Production-Planning Problem of NSC MonthDemand (tons)Production cost ($/ton)Inventory cost ($/ton/month)Starting inventory = 1000 tonsEnding inventory (at the end of 4th month) = 1500 tonsStarting production level = 1800 tonsCost of changing production level = $50 per ton (increase)$30 per ton (decrease)